FBR amends law to bring foreigners into tax net

KARACHI: The Federal Board of Revenue (FBR) brought foreign individuals or entities engaged in taxable business transactions in Pakistan into the tax net by removing a lacuna in a tax law, officials said on Saturday.  

The officials said an amendment was made into the Income Tax Rules, 2002 this week to bring foreign nationals or companies into the tax net.

The FBR, under the amendment, removed the condition of computerised national identity card (CNIC) for issuing notices by a Commissioner Inland Revenue to get a foreign person or company, having taxable income, registered.

“Prior to the amendment, tax authorities were required to mention CNIC in the notice asking a person to get register,” the official said. “Now, tax officials could ask a foreign national working as a resident to comply with the local tax laws.”

A FBR official said several domestic companies have been availing services from foreign residents for a long time and paying them huge sum, but tax authorities have so far failed to bring those foreign nationals into the tax net.

Similarly, foreign individuals are working as directors on the board of leading companies. Yet, the authorities are unable to ask them about their source of income in Pakistan. Likewise there were problems for the tax authorities to bring foreign companies operating in the country into the tax net due to lacuna in the tax laws.

The official said Income Tax Ordinance, 2001, properly defines resident individual and companies. As per the ordinance, an individual is present in Pakistan for a period of 183 days or more in a tax year. Similarly, a foreign company is to be treated as resident company, after it is incorporated or formed under any law of the country. The tax treatment of foreign entities would be the same as local individual or company, the official added.

The official said unregistered foreign persons or companies would be asked for tax registration, filing of income tax returns and details of transactions under the amendment into the Income Tax Rules, 2002.